READ THE DANGER SIGNALS BLINKING ON ECONOMIC HORIZON

We must realise corporate tax cuts don't create jobs to the extent hoped for. With the supply side failing to spur growth, we need to stimulate demand

- K M CHANDRASEKHAR

Many years ago, before Covid struck India, the Indian economy faced severe headwinds. It looked like a repeat of 2011-12, but with greater intensity. Growth fell continuously for eight quarters except for a 0.08-percentage-point blip between December 2018 and March 2019. What was roaring at 8.2 percent in March 2018 had fallen to 3.1 percent in March 2020. It appeared to be a free fall.

The government responded with supply-side measures. There was a steep reduction in corporate tax rates at a cost of ₹1.5 lakh crore to the revenues of the state. The expectation was probably that more profit would automatically lead to more investment by the corporate sector and, consequently, more employment, higher incomes and greater consumption. The hope was for a beneficial cycle to strengthen the economy and create sustained growth.

But before the impact of these measures was felt, the pandemic hit. The supply-oriented stimulus measures had little effect; the RBI rescued the economy through some significant monetary policy measures.

Following the pandemic, there was a sudden burst of energy in the economy as consumers gave free expression to suppressed demand. The monetary policy continued to be easy, and as a result production could keep pace with the increasing demand. The second quarter of 2024-25 has, however, been depressing. Manufacturing growth stood at just 2.2 percent, while export growth barely reached 2.8 percent. Last year, manufacturing was driving the economy. The GDP growth rate fell to 5.4 percent, the lowest in seven quarters and well below the 8.1 percent recorded a year ago. The first-half GDP growth rate is at 6.05 percent, below the RBI's optimistic projection of 7.2 percent for the year. Now, the expectation is that the economy will grow at 6-6.8 percent.